Rmb Equilibrium Exchange Rate Research Based On The Structure Mutations

Since the1990s, the RMB exchange rate has gradually caught the world’s attention. Since October2002, the international societies’requirements of the RMB exchange rate appreciation have been increased. China’s international trade was bothered by the RMB exchange rate problems every year. Empirical analysis shows that:A reasonable exchange rate is not only related to the country’s balance of international payment, but also the domestic macroeconomic stability and the economic sustainability of growth. Our country’s market economic system has not yet been perfect, so the economic and social system reform carries out frequently, which has important influences on the RMB exchange rate. Therefore, it is of great importance to calculate the RMB equilibrium exchange rate in consideration of these reforms.The existing equilibrium exchange rate calculations do not involve structure mutation very often. The one that involves only think about the influence of the exchange rate reform on equilibrium exchange rate. This research however, does not empirically determine the mutations, but starts from the general equilibrium equation model, and judges which changes or reforms have significant influences on RMB exchange rate item by item. So, this study covers more common and important structure mutations, and can be used to study the influences of a variety of economic policies and social system reforms on the RMB exchange rate. At the same time, the existing calculations which contain structure mutations usually add dummy variables into the standard model directly, determine their coefficient through linear regression, and then judge the importance of the mutations. But this research uses chow test to judge if a structure mutation has occurred in the first place. If it occurred, adds the corresponding dummy variable into the model. This research separates the judgment of the structure mutations and the modification of the model based on mutations, which takes the confusions out of the calculation of multiple mutations equilibrium exchange rate.This study first estimates the2002-2012RMB equilibrium exchange rate and its deviation ratio, under no consideration of structure mutation. Estimates show that:In ten years, the RMB real effective exchange rate changed on both sides of its equilibrium level. And there is no sign of systemic disorders. Over time, the RMB exchange rate showed a slow development to the overestimate. The exchange rate disorder is periodic, and can be divided into five stages. The first stage:From February2002to July2003the RMB exchange rate are consistently undervalued, with an average underestimate rate of9.2%; The second stage:From August2003to January2005the RMB exchange rate was basically stable at equilibrium level, with an average underestimate rate of5.5‰; The third stage:From February2005to March2008the RMB was consistently undervalued, with an average underestimate rate of9.14%; The fourth stage:From April2008to October2010the RMB is sustainedly minor overvalued, with an average overestimate rate of5.63%; The fifth step:From November2010to June2012the RMB is continuously and increasing overestimates, with an average overestimate rate of28.7%.Then, this study lists the significant economic or social events in ten years and verifies their influences on the economic balance. And selects five events that cause structure mutations in the equilibrium exchange rate estimation model. The events include:The qualified domestic institutions overseas investment (QDII) opening up in May2006, the RMB exchange rate formation mechanism reform in May2007, the earthquake of Wen Chuan in May2008, the medical health system reform in March2009, and the cutting down of export tariffs in July2009.Further, this research adds structure mutations into the equilibrium exchange rate model in the from of dummy variables, and gets RMB equilibrium exchange rate model which contains structure mutations. Then acquires RMB equilibrium exchange rate and its deviation containing structure mutations through empirical analysis. Estimates show that:If taking the structure mutations into consideration, the RMB real effective exchange rate and its equilibrium level anastomose good in most time. The RMB exchange rate does not show any systemic disorders. The disorders concentrates in a specific period of time, and the total disorder degrees can be divided into five stages. The first stage:Form February2002to April2006the RMB exchange rate is minor underestimated, with an average underestimate rate of1.68%; The second stage:Form May to September2006the RMB exchange rate is seriously overvalued, with an average overestimate rate of184.69%; The third stage:Form October2006to January2007the RMB exchange rate is badly underestimated, with an average underestimate rate of128.91%; The fourth stage:From February to June2007the RMB exchange rate is overvalued, with an average overestimate rate of51.99%; The fifth stage:From July2007to June2012the RMB exchange rate is minor overvalued, with an average overestimate rate of3.68%. In addition, this study determines the influences of the mutation events on the RMB exchange rate. Among them, the RMB exchange rate formation mechanism reform in May2007caused the real effective exchange rate fall by61.41%, the earthquake of Wen Chuan in May2008caused the real effective exchange rate rising by22.55%, the medical health system reform in March2009caused the real effective exchange rate fall by6.13%, and the cutting of export tariffs in July2009caused the real effective exchange rate fall by20.09%.Based on the above conclusions of the RMB exchange rate disorders, this study proposes that the government should reduce direct interventions in the exchange rate, and keep the RMB exchange rate basically stable. At the same time, the government should make comprehensive analysis about the influence of the various economic and social policies on the exchange rate.